View full sizeKeyCorp. has renewed its headquarters lease at Key Tower, the tallest building in Cleveland. Under its new deal, which starts in 2015, the bank will stay in the downtown office building until 2030 but will lease 30 percent less space -- due in large part to new office designs and new attitudes toward letting people work remotely. Portions of Key's current space already are vacant or subleased to other tenants.Plain Dealer file

CLEVELAND, Ohio -- KeyCorp has signed a 15-year lease at Key Tower in downtown Cleveland, renewing its commitment to the city's tallest building but signaling a potential challenge for the office market: Some major tenants are finding it easier to do the same work, or more, in less space.

The bank confirmed this weekend that it is staying put, despite issuing a request for proposals from developers last year and considering new construction possibilities in the Warehouse District and near the east bank of the Flats.

Key's new, 15-year lease starts July 1, 2015 and covers 487,000 square feet. That marks a dramatic reduction from the nearly 700,000 square feet, according to regulatory filings, that Key has leased since the tower opened in the early 1990s.

Though it's no secret that Key has been trimming staff in Greater Cleveland and across the country, the bank says its smaller office deal has more to do with changing workplace designs and employee schedules. Key hasn't been using all of its current space in the tower, where the bank has subleased several floors to other tenants and emptied out two others.

"This isn't because we're cutting jobs," said Kane Kretzinger, the bank's director of real estate. "This is really an exercise in creating new, efficient workspace for our employees. This is more about correcting our vacancy that already exists."

During the last five years, Key has shifted workers from the May Co. Building, off Public Square, to the nearby Higbee Building. The bank moved its Cleveland district employees out of 800 Superior Ave., a downtown office building now being remade for AmTrust Financial Services Inc., and put them in roughly half the space, filled with light and small, low-walled cubicles, at Key Tower.

The Higbee offices, with desks that aren't assigned to any particular employee and open areas designed for collaboration, hinted at the bank's changing workplace culture when they opened in 2010. But as more employees started working remotely and managers adjusted to the idea, Key realized that there was even more room to reduce -- and to save on rent.

Between now and mid-2015, Key plans to renovate parts of its Key Tower
offices and fill empty pockets on its three leased floors at Higbee and
at two buildings it owns in Brooklyn. Less desk-bound employees from the tower could
move to the other Cleveland-area buildings, but the space analysis --
being conducted with Vocon, a local design firm -- does not contemplate additional job cuts.

"When you look at average square feet per employee, we have targets that are much lower than we have today," Kretzinger said, adding that Key's unofficial goal at its offices across the country is fewer than 180 square feet per employee, down from 400 to 500 square feet in some buildings. "Everybody in the industry is going through this right now."

The bank's new deal with Columbia Property Trust, the real estate investment trust that owns Key Tower, includes money from the landlord to help Key overhaul three floors. That improvements allowance covers roughly a third of the $40 million to $50 million Key plans to spend remaking its Cleveland-area offices during the next two years. Kretzinger would not discuss the lease rate or other deal terms.

View full sizeMonica Charles works in KeyCorp's Cleveland district offices at Key Tower on Monday. The bank moved office workers responsible for its Cleveland footprint from 40,000 square feet at an older downtown building into this new space, which accommodates the same number of people in just 22,000 square feet. Filled with low-slung, small cubicles, natural light and the occasional glassed-in private office, the Cleveland district space is the model Key plans to follow while consolidating workers on other floors of the tower.Scott Shaw, The Plain Dealer

"We wanted to weigh all of our options," he said of Key's decision-making process, which lasted more than a year. "If anything, I think it just gave us additional leverage with our current landlord, putting that out in the market that we were considering options beyond the Key Tower deal. ... At the end of the day, it made the most sense to stay in the tower, given the ability to reduce square footage and get a very attractive per-square-foot cost."

Key, which employs 2,500 people in downtown Cleveland, isn't alone in seeking less space. Tenants moving from older buildings to the Ernst & Young Tower at the Flats East Bank project are finding they need fewer square feet in the city's first new multi-tenant office high-rise in decades.

Chalk that up, in part, to efficient new construction. But companies also are changing their priorities and -- the recent backlash at Yahoo aside -- letting more employees work outside the office. Now major tenants want fewer, smaller private offices and more shared spaces, said Rob Roe of Jones Lang LaSalle, the real estate services company that handled Key's new lease deal and represented several tenants who chose the Flats project.

"Most of our corporate clients are not losing head-count, but they're definitely downsizing," Roe said. "The 20-something employee today expects to be in a much more collaborative environment than the office environment of the '80s. Key is one of the leaders nationally in that initiative."

The movement toward efficiency and mobility isn't limited to big banks and other high-profile corporate tenants.

Litigation Management Inc., a suburban company that gathers and analyzes medical records for clients facing product-liability cases and other lawsuits, recently put its 77,000-square-foot space in Mayfield Heights up for sublease.

Smaller gadgets and changing technology, including the shift from paper to electronic medical records, left the company needing less storage. With fewer workers tethered to desks, the business can employ the same number of people, or grow, without the added cost of leased real estate.

Now Litigation Management needs only 20,000 square feet and hopes to move or shrink in place.

"As we look at what we need in the future, we don't have to have everyone physically here," Kathy Seibyl, the company's vice president of human resources, said last week. "I think we just had too much space to begin with."

It's unclear who will fill the Key Tower floors that Key is giving up, though rumors abound. The bank's representatives limited their comments to their own deal, which involved a somewhat unusual lease that spells out terms related to sustainability, recycling, alternative energy and air quality.

Jones Lang LaSalle called it the largest corporate headquarters "green lease" deal in the United States, based on voluntary filings with the U.S. Green Building Council and other real estate data. Key says it occupies more LEED-certified space -- real estate recognized through the Green Building Council's Leadership in Energy and Environmental Design program -- than any other private-sector company in Cleveland.

"With this important agreement, Key is affirming our commitment to Cleveland and our intent to maintain a vibrant presence in the heart of the city's downtown," Beth Mooney, the bank's chairman and chief executive officer, said in a written statement. "With this step, together with our presence in the Higbee Building and our branches throughout the city, we continue to invest in a sustainable and healthy workplace for our employees and a branch network that aligns with the needs and priorities of our clients."

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